Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
So, Where Is Gold's Corrective Upswing? - 7th Mar 21
US Treasury Yields Rally May Trigger Stock Market Crazy Ivan Event - 7th Mar 21
The Great Reset Is Coming for the Currency - 7th Mar 21
Gold Continues Declines on Bond Yield Jitters - 7th Mar 21
The Case for Inflation - 7th Mar 21
Dow Short-term Stock Market Trend Analysis - 6th Mar 21
Intel Rocket Lake EXPLODE on Launch - 11th Gen CPU's RUN VERY HOT Bad Cinebench R20 Scores - 6th Mar 21
US & UK Head for Post Coronavirus Pandemic Lockdown Inflationary Economic BOOM - 6th Mar 21
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

How Far Will Fed Go To Get the U.S. Economy Rolling?

Stock-Markets / Financial Markets 2010 Nov 01, 2010 - 06:28 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleJon D. Markman writes:The market has been marking time lately as investors await the election results and the much -anticipated Federal Reserve announcement after the Federal Open Market Committee wraps up their meeting on Wednesday.

The Fed is expected to provide a peek into its next round of quantitative easing, now considered a fait accompli. The only question seems to be how far the Fed will go to reinvigorate the economy.


But unless Republicans fail to capture the House of Representatives on Tuesday, the Fed's next move could provide market bulls with just the ammunition they need to send the bears running for the hills.

Stocks paced the carpet this week, taking the longest possible route to go nowhere. The U.S. and overseas equity markets closed flat, gold and miners were up, agriculture was up and bonds were up.

The most significant new development was the Nasdaq 100 finishing over 2,055, as it was the third weekly close above the neckline of the inverse head and shoulders bottom we've been monitoring, as shown above. The Nasdaq has crept quietly back above not just the April 2010 high but also the April 2008 high without encountering much resistance.

Shh, don't tell anyone. It'll just be our little secret. But the bear market in Nasdaq stocks is almost over. It looks like the tech-heavy index has a fairly clear shot now at 2,239, which was the top of the 2003-2007 bull cycle. Bears are likely to put up a good fight, but if that level is eclipsed you will see the mother of all short squeezes.

Of course there's a long way to go back to the all-time top in March 2000 at 4,816. But the imperfect measurement employed by technical analysts on inverse h&s bottoms puts the target for this pattern at 3,106. That would reset the clock to October, 2000.

Mostly holding the major market indexes back this week has been weak forward guidance from large banks and industrials such as Bank of America Corp. (NYSE: BAC) and 3M Co. (NYSE: MMM). This is not necessarily bad in a broader sense, remember, because investors want to see companies struggle as it helps ensure that the Federal Reserve will stay the course with its apparent decision to launch a new round of quantitative easing.

The most positive news this week came from the government's job counters. The Bureau of Labor Statistics said initial jobless claims decreased 21,000 to 434,000 in the latest week, contrary to expectations for a 3,000 increase to 455,000. It amounted to the biggest two-week decline and to the lowest level since early July.

Optimists took that as a sign that the labor market is improving, while pessimists said the numbers went down because more discouraged workers left the work force. If you stop looking for work, you may recall, you are no longer counted as unemployed. Strange, but true.

The main driver of equities over the next few days will be assessments of the U.S. election and the behavior of the U.S. dollar. The market has discounted, or priced in, a new GOP majority in the House of Representatives. If the Republicans do not win a majority in the lower chamber, then there's a pretty good chance of a steep correction in share prices.

Meanwhile, late Thursday came renewed worries over European sovereign debt. According to my sources in the macro community, five-year Spanish, Greek and Portuguese credit default swaps -- a type of insurance for bonds -- were blowing out. As a result, the euro was sliding, which means the dollar was rising, and in turns risky assets were in danger of weakening.

Keep in mind that the dollar, euro, commodity and stock relationships that we have seen in the past two or three months are not written in stone. If only there were some immutable rule, but there is not. So as much as we would expect to see stocks slide if the dollar rises, as recently as March the dollar and U.S. stocks rose in tandem.

The bottom line: Everything but banks are in good shape heading into the last two months of the year. There is plenty that can to go wrong, but the bears appear scattered, disorganized and disheartened. Think positive.

THE BATTLE
A trader friend IM'd me late in Wednesday's session with the succinct note, "The bears suck." He did not mean that in a pejorative way, since like most veteran traders he makes money going both ways equally, like a switch-hitter in baseball, equally adept from both sides of the plate. He was making the observation that from a professional point of view, the bear team is just not taking advantage of circumstances that should allow it to press its edge. And they are giving up at the least provocation, allowing their positions to be crushed.

Remember that trading is in a lot of ways like a battle between two armies -- in this case, bulls and bears, or optimists and pessimists. When one side has its front lines overrun, the other side swoops in and slaughters the retreating soldiers and takes their guns and ammo. Then they pursue, and try to hit the other side as they retreat.

It can get very ugly. We saw an extreme example of bears winning that kind of attack in late 2008 and the first ten weeks of 2009. And we have seen examples of bulls winning on this type of attack last year, and in September-October this year. But so far it looks to me as if bears have not yet given up, as we saw at the open today, and that means bulls are still in the early stages of wiping them out.

I hate to make this sound so glib, but I do think that the bulls are going to win this thing because they have the most powerful force in the markets on their side. And that is the Federal Reserve.

The Fed's ability to print money in an effort to encourage lending by banks and borrowing by businesses and consumers has virtually no checks on its scope. There are no regulators looking over the Fed's shoulders, no political entity, like the Senate or the President -- nothing. Whatever Fed chief Ben Bernanke and his board of yes men decide will occur.

The Fed has given every indication that it intends to proceed with at least $500 billion in a new round of Treasury buying in an effort to push down interest rates -- but just to make sure that the trade is not one-sided it sends out non-voting members of the board to make comments that make it sound as if they are opposed. This puts some doubt in market participants' minds, and leads to days like Wednesday -- which could stretch into a week.

However I urge you not to succumb to angst over this money flood. It may be bad for citizens but it tends to be very positive for markets.

Institutional analyst Michael Belkin told clients in a note this morning that a round of QE amounting to $500 billion would be the equivalent, in percentage terms, of the infusion of money put in the system in 1999 to battle the suspected Y2K bug. Check out the comparisons in the chart above, which comes courtesy of Belkin.

That resulted in an absolute moon shot for the Nasdaq 100 in the last quarter of 1999 and the first quarter of 2000 as it amounted to a 21% increase in Fed credit, a truly massive amount.

Now consider that $500 billion is on the low end of the scale the Fed may have in mind, with the current upper boundary of consensus at $1.5 trillion, or a 65% increase in credit. And there are some estimates that range from $2 trillion to $4 trillion.

When you put it that way, it's really a shocking amount of money that they are talking about. Beneficiaries should run the gamut of the stock market, from large lagging tech stocks like Google Inc. (NASDAQ: GOOG) and Broadcom Corp. (NASDAQ: BRCM) to large lagging energy stocks, like ExxonMobil Corp. (NYSE: XOM).

How will we know if, instead, the bears are gaining the upper hand? It should show up in the charts as a material weakening of the advance first. Check out this chart of the March-April advance, above. You'll notice it also rose along the 13-day EMA until one day it closed below that level. Two days later it reversed back above. Then there were two more closes below, and the 13-day rate of change (ROC) sank below 0%. Five days later came the Flash Crash, and a two-month rout was on. The closes under the 13-day EMA were an early signal of the change in trend.

This is certainly a possibility, but it's very close to being the wrong time of year for a major decline. One of the most consistently positive bullish periods on the Wall Street calendar are the three days prior to election day -- that's this Thursday, Friday and Monday of this week.

The bottom line is that declines like we saw Friday are likely to be good new entry points for investors and traders alike. I don't like what the Fed is doing, and you may not either, but a Big QE is more than likely going to happen -- and I do not think the effect is fully discounted by the market. If it occurs, it won't be a one-way ride, but it may feel like that sometimes. Plan accordingly.

ECONOMY: THE WEEK AHEAD
Here's a quick look at the coming week's economic releases, with a big hand from the analysts at Econoday.

-- All eyes are on the Fed's decision on quantitative easing Wednesday afternoon. But before the FOMC makes its decision, more news about the consumer will enter into the data mix with personal income on Monday and motor vehicle sales on Tuesday. The ISM reports on manufacturing (Monday) and non-manufacturing (Wednesday) will be added as well. Traders will have little time to catch their breath after the FOMC announcement and before Friday's employment report.

-- Monday, Personal income in September will be reported. Look for small rise. Also, construction spending in September; look for a small decrease.

-- Tuesday: Sales of domestic light motor vehicles in October will be reported. Look for decent advance.

-- Wednesday: Factory orders for September. Look for sizable increase of around 1.7%. Also the Federal Reserve's Open Market Committee will release a statement on how it plans to use its balance sheet in a second round of quantitative easing.

-- Thursday: Initial jobless claims for last week. Look for small improvement.

-- Friday: Non-farm payroll employment report for October. The report in September showed a 95,000 decrease following a 57,000 decline in August. Most was government related. Look for improvement, +55,000.

[Editor's Note: Money Morning Contributing Writer Jon D. Markman has a unique view of both the world economy and the global financial markets. With uncertainty the watchword and volatility the norm in today's markets, low-risk/high-profit investments will be tougher than ever to find.

It will take a seasoned guide to uncover those opportunities.

Markman is that guide.

In the face of what's been the toughest market for investors since the Great Depression, it's time to sweep away the uncertainty and eradicate the worry. That's why investors subscribe to Markman's Strategic Advantage newsletter every week: He can see opportunity when other investors are blinded by worry.

Subscribe to Strategic Advantage and hire Markman to be your guide. For more information, please click here.]

Source : http://moneymorning.com/2010/11/01/...

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules